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Key & English lose us $21mil in 3 months

Written By: - Date published: 3:23 pm, November 4th, 2009 - 40 comments
Categories: national/act government, superannuation - Tags: , , ,

Back in February, former currency speculator John Key and former Treasury adviser Bill English started talking about suspending contributions to the Cullen Fund, which was set up to help fund superannuation. ‘It’s losing so much money’, they wailed.

Some people pointed out that the markets were already recovering, that investments could now be bought at once in a generation low prices. But we were ignored.

Unfortunately, and in spite of Treasury papers being leaked that showed it would cost the country $8 billion by 2023, Key and English went ahead and essentially cancelled the contributions to the Cullen Fund from July 1.

So far that decision has cost us $21 million. That’s the return on investment above the cost of borrowing we would have made in just three months if the contributions had continued, based on the Cullen Fund’s performance. Since March, the Cullen Fund has earned 23.5% returns against the borrowing cost of 1.6% during the same time.

3 months, $21 million down the drain. The cost of that mistake will keep on compounding and compounding. Soon it will be in the billions. Even when contributions are eventually restarted, the Fund’s value will never get to the heights it would have. This decision by a former currency speculator and a former Treasury adviser could become the most expensive financial mistake in New Zealand history

And the cost of their folly will come out of your superannuation.

40 comments on “Key & English lose us $21mil in 3 months”

  1. This is not a mistake.

    This is about the wilful destruction of NZ’s middle class to better to loot the country when his mates move in. John Key does not make mistakes. He implements his masters directives.

    A poor people are preoccupied with making ends meet and not with preserving Nature reserves or pollution rules and regulations and as far as superannuation goes; who needs lots of old people.

    • logie97 1.1

      What is to stop Nact cashing the whole fund in sooner than later to offer it up as a tax rebate come election time. Be quite a large amount to splash around – they might even suggest we make our own Super arrangements and offer the “gift” as a generous kick start…

  2. Draco T Bastard 2

    National has been bad for the economy every time they’ve been in power so what makes anybody think this time will be different and what makes them think it isn’t purposeful?

  3. tc 3

    That’s quantifiable, how much will other NACT policies cost NZ in the long run with Tolley driving out good educators with her ‘Danger Low Brow’ approach, Nick Smith -say no more really on that one, Gerry opening us up to mining, the continued hammering of lowly paid workers and expats watching all this from Oz and beyond being expected to happily return…..YEAH RIGHT.
    Then there’s Maori/ACT and whatever it is they’ve done which will all come out after they’ve done the damage.
    Some sectors of NZ have only just recovered from Muldoon…..in time for Blinglish and our PM Gordon Gecko wannabe to send us all back decades again.
    Clark/Cullen and crew became stale and misread the electorate but essentially did a heap of good stuff…..now watch the wrecking crew at work.

    • Chris 3.1

      you forgot the $11b that it’ll cost to fix up leaky homes… a direct result of National policies…

      • lprent 3.1.1

        Yeah, my building (and I) just picked up their millions from the council.

        I’d preferred to have had a better building than go through the last 4 years of hell.

  4. cocamc 4

    Ok, just a question MartyG. If the Govt had borrowed the money and the markets then softened again would you then accuse them of losing us money as well? And do you know that the money will come out of our superannuation when I retire in 20 years? Please tell me cause I thought National was setting policy and not the Standard.

    • lprent 4.1

      Ummm I never noticed you not having anything critical to say about government policy and performance under the last government… In fact from your comments on this site alone you were critical of everything from Labour and always willing to say how you thought they should have done it (which usually coincided with NACT policies and usually had a rather low level of logic in my opinion (ie they often felt like the dog-whistle of the week)).

      Now you appear to be saying that voters (just like yourself) shouldn’t be critical about the policies and performance of this government?

      Tell me have you looked in the mirror lately and asked how much of a hypocrite you are? Because that is what you appear to be saying.

      • cocamc 4.1.1

        lprent
        Only joined the reading of the site late in the piece. Plenty of things I can be critical about from the previous Govt, and plenty I can be critical of this one too.

        If MartyG wants to talk about superannuation and how this government is costing us money then I should be entitled to ask him if they had borrowed the money and we’d still lost money – would he be happy. No one knew the markets would bounce back as quickly as they did – they could have quite easily tanked even more and we’d have bought equities, etc at higher prices and then a longer time to recover.

        Everyone seems to chip at the sidelines about Superannuation but it needs a new approach. Personally I do not expect in 20 years that the government will be able to pay my superannuation so things have gotta change, e.g.

        I wish Labour had had the the guts to take the next logical step and make it compulsory – it’s a great scheme.

        The Cullen Fund was to my understanding to pay for the baby boomer generation (not me). Once that is done with then I hope the following generations have retirement organised. I support National but I wish they’d have the gumption reach out across the political divide and put something in place once and for all. Then we can stop having a debate about the same old things all the time.

        • lprent 4.1.1.1

          That wasn’t what I was asking about, was it. You were asking if Marty was making policy. But of course every voter does that. Demanding that he shouldn’t is just pure hypocrisy with your track record…..

          The problem with super is that it is set up as current worker generation pays. The type of system you’re wanting is what Kirk set up. Kiwisaver was an obvious transition system, however NACT have massively cut that as well.

          Now if you’re willing to pay double to do the transition (ie pay for you and me), then I’m happy for you to do it. In the meantime I have a considerable amount of money put into the current super system and intend to make sure that my grey voting power sucks it out of those who are now due to pay for it. The less money available, the more that crop of taxpayers winds up paying. Personally I’d prefer to put the costs in while I’m still working… The various costs you are talking about are peanuts compared to the costs on later taxpayers.

          Thank National and Robert Muldoon.

          • cocamc 4.1.1.1.1

            I agree with you re Superannuation ( but not sure about paying twice 🙂 ). Why should I expect to have future tax payers fund my retirement – its my reponsibility now while working to put those funds aside.

            Any transition is going to be hard to manage. Superannuation is one thing I do think National is being very weak on. As I sort of said, kudos to Labour for Kiwisaver.

            • Draco T Bastard 4.1.1.1.1.1

              National are weak on everything that has to do with economics – they’re entire economic policy seems to be spending/borrowing now and have the (assumed) richer later generations pay for it. This shows up in Muldoons dropping of compulsory super back in 1975 (just think of how much better off we’d be now if we’d kept that) and their crying out for tax cuts over the last few years (they may have stopped the present cuts but they’re still in the pipeline). Such a policy falls flat when later generations are going to be worse off.

    • Lanthanide 4.2

      As further to what cocamc has asked, what would have happened to NZ if they had kept borrowing to put into the Cullen fund, and as a result NZs investment rating had been downgraded?

      I know at the time you kept saying that it was all just scare tactics and they wouldn’t lower the rating, and even if they did, it wouldn’t be a problem. But I have not actually seen any concrete evidence or expert opinion from you that your assertions (1. that they wouldn’t downgrade it, and 2. if they did it wouldn’t matter) are correct.

      Really it’s a simple risk vs reward scenario – they may have seen that if we continued to invest in the Cullen fund, that the rating would be downgraded and bad things would stem from that, vs suspending contributions and avoiding the downgrade. In other words, they took the lesser of the two evils – either option is bad for the country but avoiding the ratings downgrade and sacrificing the $21M was ‘less bad’.

      • Pascal's bookie 4.2.1

        I do remember at the time, on I think it was natrad, the guy from the ratings agency that was threatening the downgrade saying that they were happy about the budget because canceling the tax cuts allayed their concerns. Which makes a lot more sense in terms of their worries.

  5. So Bored 5

    During a recession of huge dimensions the nats have manageed to lose a heap of cash to long term debt. This is good for their paymasters as it means long term guaranteed returns from impoverished NZers. In between times the NACTs have also given money to their mates as tax cuts…the end result is:

    * a level of debt we could have avoided through the tax take being diminished by tax cuts.
    * a shift of the risk profile from the lender to the citizens of NZ, generally those least able to pay via a slanted (away from the rich) tax system.
    * debt levels that are an argument for privatisation of public assetts.

    All up this represents a huge shift of wealth from those of us who can least afford it to those that already have too much.

  6. Endymion 6

    I’m neither a ‘successful’ currency speculator – a purely parasitic occupation if there is one – nor a Finance Minister with battalions of overpaid economics advisors to interrogate, but I still made the decision to open my KiwiSaver account in March because it was obvious that there were good returns to be had from it. So far my KiwiSaver account has made money – and not just from the taxpayer’s contribution to it.

  7. Scribe 7

    3 months, $21 million down the drain. The cost of that mistake will keep on compounding and compounding. Soon it will be in the billions.

    Wow, I’ve got $21K in the bank. Using your exponential mathematics, Marty, I’m soon to become a millionaire.

    Bring back Tane! And — I never thought I’d say this — bring back Steve Pierson!

    • BLiP 7.1

      The greatest short coming of the human race is our inability to understand the exponential function

      Albert A Bartlett

  8. Walter 8

    Please note also that the ‘in deep financial trouble’ ACC made huge profits on its investments in the same period.

  9. TightyRighty 9

    How can you lose “$21m” dollars if you never had it in the first place? it’s actually that a potential gain of $21m wasn’t made. the opportunity was there and wasn’t taken that is. as this then represents an opportunity cost and not a real cost, it is only economic, and therefore not worthy of any consideration given the scathing comments made about economists on this site.

    • felix 9.1

      I think that’s a fair point – it makes more sense to say they “cost” us 21mil than “lost” it.

    • lprent 9.2

      Watching the bloody Nats screw up super from well before you were born. It has been the considered opinion of most people of my age that we wouldn’t get what we were paying for because of the Nats mismanaging what we’ve been paying for decades. It is only the stupid and the young who haven’t figured out the issue of National and super.

      Muldoon set it up under-forward-funded because that dipshit wanted to win an election by forward loading the costs to the future rather than save as you earn. There is a bloody great big spike of people to go into the scheme between now and 2050. We’d prefer not to double your tax rates so we’ve been putting money aside so we don’t have to. These dumb-arses in this NACT government prefer that you pay more tax in the future rather than doing investment now.

      Their logic is that tax-cuts will provide more productivity than having a local capital investment fund. It is half-arsed logic because as long as I’ve been in business, investment capital here hasn’t been scarce, it has been virtually non-existent at any kind of acceptable rate. The rate is a consequence of the shortage and the perceived risk against stuffing it into houses. It is the main constraint on improving productivity.

      Really the reason for the NACT’s screwing around with the superannuation is because they want to win elections with taxcut bribes – which is where I came in… National are very conservative idiots.

      • TightyRighty 9.2.1

        And no one is arguing the point that investment capital is limited in NZ Lprent. what is arguable is that tax cuts don’t improve productivity. eventually the property boom must cease if everyone has spare cash for investment as the supply of available land dries up to a certain extent, or people aren’t convinced the return from property is as great as could be achieved elsewhere. whats needed is a capital gains tax on people who regularly trade in housing. or ring fence the family home or whatever. this would bring rates of return in line with what is on offer in the share market currently and then people could make more rational choices. however choice is curtailed at the moment due to the excessive tax regime. $1000 per year in the average new zealanders pay packet equates to around $2.2 billion of extra spending per year available in private hands, which should then generate more tax dollars to make up the lost revenue from a cut “north of $50 per week.” whether it is spent on consumption or investment is irrelevant in that context, though perhaps returns on shareholding could be taxed at a lower rate to encourage more investment in capital raising ventures.

  10. gnomic 10

    Agreed that the Nats ought not to have cancelled, er ‘suspended’ contributions. But could we wait another six months say, before breaking out the champagne in honour of the recovery, and the never to be repeated low asset values? Some think that the global economy, and hence NZ’s, is not home free yet. Rod Oram for example was on National Radio recently saying there could still be bad news in the next few months to match the events of late 2008.

  11. Has anyone done the maths and seen how much 21 million equates to in terms of super payments, doesn’t seem like it. It’s SFA.

    • lprent 11.1

      Ummm you don’t understand compounding do you?

      Also the plan from the NACT’s is to not put more money into the fund for the next 10 years (?) or so. So that money doesn’t increase either. So instead of rising to conservatively cover something like a third or more of the peak of superannuation costs, it will wind up paying 10-15% at best. The difference, it will cost you through your taxes because I won’t be paying taxes then. You probably will, and there will be a lot less of you to pay them compared to now.

      This is the cost of the small tax-cut now, which you will probably squander or lose to higher costs. Instead, you will pay a lot more tax later…. Loser…

      • Settle down mate. I was pointing out that 21 million is small fish in the grand scale of national finances. I stand by that.

        Governments of both persuasions have worn greater opportunity costs with needless arts, sports and welfare financing over the years.

  12. Jcw 12

    This level of return wont continue infinetly into the future, as this is comparing it to when prices were at rock bottom. Comparing the average return made over the funds lifetime would yield a much lower result, remember almost all of that 23% made in the past few montsh would only just balance out the loss made on the dive.

    The government should focus on growing the economy – as this is where taxes are collected from. The government is in a unique position to invest in such things as roads, education and other infrastructure that pay dividents indirectly by means of economic growth. As at september 23rd (and stock prices were probably as high or higher then compared to now) the superfund made a return of about ca5%. This is over a number of years since its inception.

    If this money had been invested in the New Zealand economy, either as fast tracked infrastructure of yes tax cuts (which if implemented appropriately are an investment as they stimulated the private sector which in the long term will pay more tax) the return would have been higher in my opinion. This is this crux of why I oppose the cullen fund.

    Yes borrowing to save would have resulted in a significant profit in this particular case – but this is also a risky move. The government should absolutely not be taking on undue risk. Not only would this increase the cost of credit, but its gambling with all our futures.

  13. tsmithfield 13

    I have also seen argued on this site that the market is going to crash again to even lower levels and send the world into a depression greater than the 1932 one. There are also plenty of bearish commentators who share this view and can point to plenty of reasons why it could happen.

    Lets say the government had invested the Cullen fund in the markets and such a crash actually happened, I bet there would be plenty of criticism from this site about how much the government had lost us with their foolish decision.

  14. So Bored 14

    TS, you under estimate our powers of criticism. I was highly critical of the Cullen scheme because it was going to invest cash in financial markets that were at the time over-inflated bubbles, just plain bad investment practice. Having said that the goal of the exercise was far in advance of anything the NACTs could ever envisage, that is to challenge and do something about that future funding an of aged retired populace.

    As to the market crashing again nothing is more certain, its what they do, just a matter of when. On the flip side they go up aswell….commentators on this site atleast question the validity of the whole market based economic approach to providing a fair society.

  15. sean14 15

    After all the evil capitalism threads posted on The Standard you’re now complaining that the Government hasn’t played the stock market well enough?

    I thought profits were evil things made from the sweat and broken backs of the poor down-trodden working class?

    • So Bored 15.1

      Sean, too right I criticise all sorts of cocks ups whether I believe in the underlying structures or not.

      In the case of the government, they did not play actually play the market themselves, their cock up was to allow somebody else to do it for those Kiwisavers. A good funds manager would have picked the risk and found a safer haven for the cash, so yes I am highly critical.

      Your statement on where profits come from is quite pertinent, its actually the way it is, but it is nice to think that profits might come back to the very people doing both the investing and the work.

    • snoozer 15.2

      if there wasn’t capitalism, there would still be assets and a system for exchanging control of them and distrubuting the wealth generated by them.

      Anyway, you live in the system you live in. You might want to change it but you also shouldn’t act stupidly.

  16. JD 16

    So Marty how much did you make on your heavily leveraged directional play? Probably nothing because you’re talking from the rear view mirror perspective.

    Shudda cudda wudda.

    One of the main reasons why some many banks are insolvent and remain so today is that they gambled with borrowed money. So how responsible is it for you to advocate that the govt should do they same?

    • snoozer 16.1

      um, all banks do is invest with borrowed money. They take your savings and lend it to someone else, or invest it. In fact, they lend it out many times over.

  17. tsmithfield 17

    In NZ dollar terms the value of the American stock market has hardly changed due to the depreciation of the American dollar. The rise in the stock market has almost equally been offset by the rise of the Kiwi against the USD if you analyse it since the low point in March. Hence, investments in the US stock market would have yielded very little.

    • Bright Red 17.1

      The Cullen Fund has made an 11% return since July. If we had been putting the contributions into it we were meant to have, they would have earned the same or similar returns

  18. Homo Domesticus 18

    Corrupt and cant Bill English must resign now or be tried for corruption. He knowingly enriched himself from the public purse with money he is not entitled to. Rise Friends, and oust the bludger English.

    Homo d. (FPP)

  19. JD 19

    “um, all banks do is invest with borrowed money. They take your savings and lend it to someone else, or invest it. In fact, they lend it out many times over.”

    Ah the gentrified world of return on asset. If banks only did this then a lot of nasty things wouldn’t have happened and we would all be happy. No its about return on equity and therefore leverage. Banks generally are thinly capitalised with only a sliver of equity to support ‘investment’. Now that their assets have been downwardly ‘revalued’ by the market in most cases all their equity and a large chunk of their assets are gone, hence the Troubled Asset Relief Program in the US and bank recapitalisation in the UK to rectify this.

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